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Is Pakistan’s Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth

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  • Felipe, Jesus

    (Asian Development Bank)

  • McCombie, J. S. L.

    (University of Cambridge)

  • Naqvi, Kaukab

    (Asian Development Bank)

Abstract

This paper examines the extent to which Pakistan’s growth has been, or is likely to be, limited or constrained by its balance-of-payments (BOP). The paper begins by briefly considering the BOP-constrained growth model in the context of demand and supply-oriented approaches to economic growth. Evidence presented suggests that Pakistan’s maximum growth rate consistent with equilibrium on the basic balance is approximately 5% per annum. This is below the long-term target rate of a growth of gross domestic product of 7–8% per annum. This BOP-constrained growth approach provides some important policy prescriptions for Pakistan’s development policy. Real exchange rate depreciations will not lead to an improvement of the current account. Pakistan must lift constraints that impede higher growth of exports. In particular, it must shift its export structure to products with a higher income elasticity of demand and sophistication.

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Bibliographic Info

Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 160.

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Length: 46 pages
Date of creation: May 2009
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Handle: RePEc:ris:adbewp:0160

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Cited by:
  1. A. Bagnai & A. Rieber & T.A.D. Tran, 2013. "Economic growth and balance of payments constraint in Vietnam," Working Papers 13, Development and Policies Research Center (DEPOCEN), Vietnam.
  2. Chassem, Nacisse Palissy, 2011. "Hypothèse de Thirlwall: cas des pays de la zone Franc
    [Thirlwall’s hypothesis : the case of countries of the Franc Zone]
    ," MPRA Paper 29990, University Library of Munich, Germany.

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